Enterprise budgeting is one of the most important components of economic planning, which in turn is part of financial management. In fact, it is a special type of planning, which is based on the principles and methods of execution, preparation, control, evaluation and adjustment of budgets, presented in the form of a specific form of plans. In another way, it is possible to say that budgeting at an enterprise is planning for the future economic activities of the organization, the results of which are drawn up using the budget system.
Its main purpose is to develop, as well as increase the validity and effectiveness of all kinds of management decisions. The mechanisms that budgeting at the enterprise can be effective in trying to make the workflow more efficient, obtain new resources, and increase planned indicators. The benefits are obvious.
Company budgeting allows you to:
- optimize profits and costs;
- coordinate the activities of different departments of the enterprise;
- identify what resources are needed and which can be abandoned;
- to analyze the financial activities of part of the enterprise or its entirety;
- strengthen discipline within the enterprise.
It must be borne in mind that budgeting at an enterprise is separate from tax as well as accounting. Budgets are usually created as part of ongoing planning. This means that their conditionality with strategic plans is important.
A budget is an operational plan by which you can determine the ratio of financial flows to a specific unit or type of activity for a certain period of time. Based on it, you can predict future results, the meaning of the commission of certain actions.
In other words, the budget can be considered a quantitative expression of plans that are set for a certain period of time. This refers to plans for:
- expenses and income;
- investment;
- the use of various resources;
- cash flow ;
- attracting new sources of financing.
The time span for which the budget is developed is called the budget period. It is determined by the current planning at the enterprise. The planning horizon (its duration), in turn, has a direct relationship with the forecast horizon, and also depends on the instability of the external side of the enterprise.
The budget process is a combination of processes that are directly related to the budget (meaning formation, approval, as well as control). It is being developed in accordance with the internal state of the enterprise.
The budgeting system is a combination of those measures that are used to implement the budget process. It consists of the following elements:
- responsibility centers;
- financial management structure;
- methods of budgeting;
- budget management;
- budget consolidation.
Organization of budgeting at the enterprise is possible if:
- systems of responsibility and authority;
- strict regulation of relations between employees;
- qualified staff;
- accepted and prescribed functions of units.
The financial structure of the budget process management involves:
- distribution of basic and secondary functions in the control apparatus;
- creating a suitable motivation system;
- creation of high-quality information infrastructure;
- identification of mandatory accounting centers;
- definition of responsibility centers;
- creation of internal rules, as well as their own regulatory documents.